This article appeared in the ATM & Financial Self-Service Executive Summary, Spring 2006.

The Check Clearing for the 21st Century (Check 21) Act, became effective October 2004. Since then the full implementation and realization of Check 21's potential has fallen far short of expectations, and is only now beginning to gain ground.

Like many new technologies, the cost of adopting Check 21 has been a concern.

Every bank is unique in how it buys new technology, integrates it and evaluates it. With Check 21, most benefits are realized and measured in day-to-day operations, requiring a thorough analysis of processes and possible cost benefits in order to justify the electronic movement of check items.

Before making the move, banks should analyze:

• How much time, labor and resources are currently dedicated to paper-check processing, secure transportation and storage.
• What efficiencies can be realized by eliminating courier costs.
• What new and added benefits can it bring to its customers by being Check 21 technology-enabled.
• When can a true return on investment be realized.

Every component of analysis, from courier costs and gas prices to delivery speed, float improvements and savings in staff and equipment, needs to be analyzed and assigned a specific value so the savings can be recognized clearly.

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Early adoption of new technology has typically come from larger FIs paving the way. Conventional wisdom expected community banks to reject Check 21 as too expensive to implement -- only following suit once the act was more widely accepted and affordable.

The truth, however, is just the opposite: It's not that it's more expensive, but that larger FIs are waiting to see what the smaller guys do.

Larger asset-sized banks have to do more to justify their use of Check 21 technology. For example, clearing a check faster brings more value to a bank. Different components, such as speed of delivery and reduction of float, need to be assigned a value and factored into the decision-making.

Since the cost of moving paper checks electronically can be more or equal to keeping checks paper-based, some banks may opt to use Check 21 technology only for their higher-dollar checks.

As Peter Lucas pointed out in "What's Next for Image Exchange?" (Digital Transactions, January/February 2006), only 3 percent of the more than 16 billion transit checks are being processed electronically. Furthermore, the bulk of check volume does not come from high-dollar checks.

With the cumulative expenditures of courier services, increased gas prices, check processing costs and the price of printing image-replacement documents (IRDs), implementing check-imaging technology has proven more economical for community banks than first thought.

According to the 2005 Community Bank Technology Survey conducted by the Independent Community Bankers of America, 71 percent of community banks are using check-imaging applications.

Because use of Check 21 technology across different FIs is inconsistent and fragmented, its full benefits aren't yet realized.

Out with the old

Despite the slow acceptance of Check 21 technology across all FIs, check imaging and processing technology will not remain stagnant. It will continue to become increasingly visible with changes in the industry.

Lucas writes, "The payoffs from Check 21 technology, once end-to-end image exchange is widely accepted, will have networks exchanging more than 100 million images per month."

In the interim, banks must continually analyze their key components to determine the right time to begin processing checks electronically.

Check 21 holds inherent benefits to FIs and their customers. For example, merchants are implementing check-imaging technology to eliminate the time and expense of physically delivering deposits to the bank. Remote deposit-capture makes possible multiple deposits in one day to any FI in the United States via the Internet.

Remotedepositcapture.com, an independent authority on remote-deposit capture owned and operated by Parsippany, N.J.-based Blue Mountain Enterprises LLC, predicts Check 21 technology will boom in 2006. As more FIs miss out on customer service opportunities and cost-saving efficiencies, the wait-and-see period will eventually come to a close.